There has been a steady drumbeat from the Treasury Department as to what “successful investments” the bailouts of Wall Street have been. This morning I’d like to broadly consider that by discussing a few key points that I have yet to see addressed.

Namely, that these were not investments, but rather they were systemic rescues. If you are going to judge how successful they were, you have to do so under the proper framework, and by looking at the entire picture. Merely asking if taxpayers got their cash back is not remotely the correct analysis.

If the purpose of the bank/AIG/automaker/GSE rescues were to save the economy from falling into the abyss, than that is the framework one should use in evaluating if they were successful. What wer ethe costs, risks, and long term effects these rescues had. It is a fair to also consider what alternative rescues would have looked like, cost, and whether they might have worked. Looking at whether alternative rescues were cheaper and more effective is a legitimate a counter-factual inquiry.

The short answer is Yes, we avoided financial Armageddon — but at a cost.

It seems many folks want to evaluate these bailouts under a different framework as investments. I believe that is an inappropriate measure; however, if you insist on judging these as that way, than we best evaluate them properly as such. In my opinion, as investments, they were handled poorly, negotiated terribly, took extreme amounts of risk, and delivered radically under-performing returns.

Regardless, we continue to see from Treasury Secretary Geithner, and more recently from NYT columnist Andrew Ross Sorkin[1], an unfortunate tendency to conflate these two different measures: “We rescued the system, AND got all of our investment back. Yeah!”

This is disingenuous. It does not consider ALL of the costs of the bailout, nor does it judge the “investments” properly as such. (I’ll have more coming on this Sunday).

When one evaluates how successful anything is, it helps to understand what the original goals of that project were. Here is where we run into a major problem, as those goals have morphed over time — flailed really — from one set of objectives to another. The initial goal was to prevent another Great Depression, to stabilize the financial system, That then morphed into saving the banks, and rehabilitating their balance sheets. Next, stopping the freefall in Housing and providing some relief to borrowers. Lastly, the entire process has been dumbed down to the point of “did we get out money back?” — as if that was the primary purpose of this “investment.”

Did the taxpayers get their money back? is the wrong question. There were many costs, past and ongoing, that the economy had to bear to pursue these rescue plans. The taxpayer (aka the US government) assumed a tremendous amount of risk, provided bailout funds at a time when NO ONE ELSE ON EARTH WOULD OR COULD, created an enormous moral hazard, and rescued bond holders — at 100 cents on the dollar — when they did not deserve any such rescue in a capitalistic system.

By most measures, the Bailouts did stabilize the system, and prevented another Great Depression (so far). I do not think any fair minded critic will disagree about that. However, there are legitimate criticisms of the societal costs of these bailouts, about the collateral damage that it wrought. We still have an ongoing propping up of banks, ZIRP, and other lingering effects.